Court upholds pay-now-argue-later tax argument

The taxpayer objected to certain additional assessments raised by Sars.

The Income Tax Act provides that an objection or appeal does not suspend the obligation to pay tax, unless the South African Revenue Service (Sars) directs otherwise. This is known as the pay-now-argue-later principle. In a recent judgment, the High Court in Pretoria considered a taxpayer's application to restrain Sars from collecting tax pending an appeal. The taxpayer, an individual, had objected to certain additional assessments raised by Sars. The objections were disallowed by Sars and the taxpayer appealed. The taxpayer also applied to Sars for his obligation to pay the assessed tax to be suspended, pending the outcome of the appeal. Sars declined that application and took a judgment against the taxpayer for some R580 million. The Income Tax Act contains provisions that allow Sars to take judgments against taxpayers, without having to notify such taxpayers. Sars is then able to enforce those judgments and attach property. This enforcement, along with other possible collections action, was the taxpayer's concern. The taxpayer sought to counter Sars' actions by applying for the rescission of the judgment and applying for a High Court review of Sars' decision not to suspend his obligation to pay tax pending the appeal. These would take time, so the taxpayer also made an urgent High Court application for interim relief. This interim relief was to the effect that Sars be restrained from any collections action, pending the outcome of the review application and/or the rescission application. In order to consider the interim relief sought, the High Court found it necessary to look at the basis of the taxpayer's appeal against the relevant assessments. That appeal was essentially an attempt to enforce a purported settlement agreement with Sars. The High Court found there to be no enforceable settlement agreement in respect of the taxpayer. There was a written settlement agreement, upon which the taxpayer relied, but he was not a party to it. The High Court found that the taxpayer had been involved in settlement negotiations with Sars regarding undisclosed income, but that such negotiations had not resulted in an agreement. The finding that there was no enforceable settlement agreement led the High Court to conclude that the taxpayer was not entitled to the interim relief sought. This was on the basis that, if the taxpayer could not even show on the face of it that he had an entitlement to the final relief sought, he could not obtain interim relief.

*Tim Desmond is a director at Garlicke & Bousfield's Tax and Commercial Departments

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